2016 (9) TMI 437 - AT - Income Tax

Penalty U/s 271(1)(c) - Held that - It is a fact that the ld Assessing Officer in assessment proceedings had not mentioned any particular limb of penalty whether it is for concealment of income or for furnishing inaccurate particulars of income. He also had not given any finding in the penalty order that this penalty was on account of a particular limb. The ld DCIT at the time of imposing penalty, has also not taken approval from the ld JCIT U/s 274(2)(b) of the Act. It is also undisputed fact that the assessee has not deducted TDS on commission expenses claimed during the year under consideration but it has been explained that this provision was inserted w.e.f. 01/4/2005 which was amended from time to time. There was an ambiguity and doubts in application of this provision. The auditor of the assessee had also not pointed out this defect in the audit report whether TDS was liable to be deducted or not on commission expenses claimed by the assessee. Non-deduction of TDS is a technical violation U/s 40(a)(ia) of the Act. The disallowance under this Section are made on the basis of deeming provision held that legal fiction created U/s 40(a)(ia) cannot be extended for levy of penalty U/s 271(1)(c) of the Act as the deeming provision inserted for specific purposes. The case laws relied upon by the assessee are squarely applicable, therefore, we uphold the order of the ld CIT(A). - Decided against revenue.

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Disallowance under Section 40(a)(ia).
3. Disallowance of contingent liability.
4. Disallowance out of car hire charges.
5. Non-allowable expenses such as donations and higher depreciation claims.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The core issue is whether the penalty of ?28,80,261/- imposed under Section 271(1)(c) for furnishing inaccurate particulars of income and/or concealment of income should be deleted. The Tribunal upheld the CIT(A)’s decision to delete the penalty, emphasizing that the Assessing Officer (AO) did not specify the default (concealment of income or furnishing inaccurate particulars) in the penalty order. The AO also failed to obtain approval from the JCIT under Section 274(2)(b) for imposing the penalty. The Tribunal noted that the non-deduction of TDS on commission expenses was a technical violation and not a deliberate act of concealment or furnishing inaccurate particulars.

2. Disallowance under Section 40(a)(ia):
The AO disallowed ?70,48,481/- under Section 40(a)(ia) for non-deduction of TDS on commission expenses. The Tribunal observed that the provision was newly inserted and subject to amendments, leading to ambiguity and doubts regarding its application. The assessee's auditor did not highlight the TDS liability in the audit report, indicating a genuine oversight rather than intentional evasion. The Tribunal cited various judicial precedents to support that disallowance under this section does not automatically attract penalty under Section 271(1)(c), as it is a deeming provision for specific purposes.

3. Disallowance of Contingent Liability:
The AO disallowed ?44,02,000/- claimed as commission payable, arguing that the liability had not crystallized. The CIT(A) noted that the assessee had furnished all particulars correctly and made a legal claim based on consistent business practice. The Tribunal agreed with the CIT(A) that the rejection of such a legal claim does not constitute concealment of income. The Tribunal referenced the Supreme Court's decision in Reliance Petro Chemicals Pvt. Ltd. vs. CIT, which held that merely making a claim, which is not accepted, does not attract penalty under Section 271(1)(c).

4. Disallowance out of Car Hire Charges:
The AO disallowed ?1,00,370/- out of car hire charges. The Tribunal did not specifically address this disallowance separately in its analysis but implied that the overall approach of the AO in imposing penalties was not justified given the circumstances and legal precedents.

5. Non-allowable Expenses such as Donations and Higher Depreciation Claims:
The AO disallowed ?1,18,370/- for donations and ?30,400/- for higher depreciation claims. The CIT(A) confirmed the penalty on these amounts, totaling ?1,48,770/-, as these expenses were clearly not allowable, and the assessee failed to provide a bona fide explanation. The Tribunal upheld this part of the CIT(A)’s order, agreeing that the penalty on these specific amounts was justified due to the lack of any plausible explanation from the assessee.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)’s order to delete the majority of the penalty under Section 271(1)(c), except for the penalty on non-allowable expenses like donations and higher depreciation claims. The Tribunal emphasized the importance of specifying the nature of the default in penalty proceedings and recognized the genuine ambiguity in the application of Section 40(a)(ia) during the relevant period.

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